Nominal rate vs. APY
A bank can advertise a “5% rate” two different ways. Thenominal rate is the raw annual figure before compounding. The APY — annual percentage yield — is what you actually earn once that interest is added to your balance and starts earning interest itself. The more often that happens, the more you make. APY is the honest, compounding-inclusive number, and it’s what U.S. banks are required to quote.
The APY formula
APY = (1 + r ÷ n)n − 1
where r = the nominal annual rate (as a decimal) andn = the number of times interest compounds per year. Forcontinuous compounding the limit is APY = er − 1. A 5% rate becomes 5.000% APY compounded annually, but 5.127% compounded daily.
What makes this calculator different
- Every frequency, side by side. We don’t just show one APY — we compute the yield at daily, monthly, quarterly, semi-annual, annual, and continuous compounding from the same nominal rate, so you can see exactly why “compounded daily” beats “compounded monthly.”
- APY in real dollars. A percentage is abstract. We translate the APY into the actual interest earned on your balance over your time horizon — and the final balance.
- The number to shop on. APY is the apples-to-apples figure for comparing savings accounts, CDs, and money-market funds. We make it the headline.
- Shareable. Every input is saved in the link, so you can send a scenario to anyone.
Frequently asked questions
What’s the difference between APY and interest rate (or APR)?+
The nominal interest rate is the raw, stated rate before compounding. APY (annual percentage yield) folds compounding in, so it’s the true amount you earn in a year. APR (annual percentage rate) is the borrowing-side cousin: it includes fees but, by convention, does not compound. So for the same nominal rate, APY ≥ the rate (more compounding means a higher yield), while APR ≥ the rate (fees push it up). When you’re saving, compare APY to APY; when you’re borrowing, compare APR to APR.
How does compounding frequency affect APY?+
The more often interest is added to your balance, the sooner that interest starts earning interest of its own — so a higher compounding frequency produces a higher APY from the very same nominal rate. A 5% nominal rate is 5.000% APY compounded annually, 5.116% compounded monthly, and 5.127% compounded daily. The gains shrink as you go from annual to daily; continuous compounding (eʳ − 1) is the mathematical ceiling. The comparison table above shows every frequency side by side.
APY vs APR — which should I care about for savings vs loans?+
For savings, CDs, and money-market accounts, focus on APY: it tells you what you’ll actually earn after compounding, so a higher APY is better. For loans and credit cards, focus on APR: it captures the rate plus fees, so a lower APR is better. The two aren’t directly comparable because APY assumes compounding works for you while APR (as quoted) does not. Comparing a savings APY to a loan APR is apples to oranges.
Is APY guaranteed?+
Only for fixed-rate products like a CD held to maturity. Most savings and money-market accounts pay a variable rate the bank can change at any time, so the APY they advertise today is a snapshot, not a promise — if the rate drops, your realized yield drops with it. APY also assumes you leave the interest in the account to compound; if you withdraw it, your effective yield falls back toward the simple nominal rate.
How do banks quote APY, and why does it differ from the rate?+
U.S. banks are required by the Truth in Savings Act to advertise the APY so consumers can compare accounts on a single, compounding-inclusive number. The "interest rate" they may also list is the nominal rate before compounding. Because APY bakes in the compounding schedule, two accounts with the same nominal rate but different compounding frequencies will show different APYs — and the one with the higher APY pays you more.
Disclaimer: This calculator is for educational purposes only. Advertised APYs are often variable and can change at any time, and compounding conventions differ by product and institution. It is not financial advice.